Zimbabwe has a long history of gold production going back many centuries and gold is, by any estimate, a mineral with the longest mining history in the country. The gold industry is characterized by large greenstone belts that support many small, privately owned mines. A 1995 United Nations working paper on gold mining in Zimbabwe estimates that there are more than 5,000 small-scale gold mines. This number has increased significantly since this last study and one estimate of the deposits will definitely exceed 10,000. The economic stagnation of the past decade has seen development efforts in the area of small-scale gold mining collapse and has further fragmented more to the private ones. ownership and distribution of small claims owners.
A large number of these mines have considerable potential, but are considered unattractive investments by current rights holders due to the considerable capital required. The technology does not present a real limitation; the necessary equipment and skills are available locally; and there are no legal obstacles. Zimbabwe’s current mining law is probably the simplest in Africa for acquiring a full and transferable mining title. Rather it is the scarcity of venture capital for the purchase and exploration of equipment and entrepreneurial skills that inhibits the development of small-scale mining.
The traditional approach to extracting gold claims was for the title holder to prospect and fix their claims, and then raise sufficient capital to purchase the mining equipment. If capital is hard to come by, rights holders often resort to manual methods just to mine the richest veins for very low recovery. Once the easy to mine near surface gold resource is depleted the claim is abandoned and in cases where this is not the case the claim becomes highly dangerous for any further work due to the dangers of numerous sinkholes and tunnels that randomly chase the vein. This short term mining method further reduces the life of the mine. To quote the 2010 World Gold Analyst – Zimbabwe Special Report (WGR), “Such methods are notoriously inefficient as they do not take into account the geological setting and potential of the entire mineral deposit. With a more systematic and objective approach they could determine not only the scope of the entire deposit, but also what techniques would best serve them for the optimal exploitation of the mineral wealth”.
The biggest challenge for title holders is motivating capital equipment funding for their individual gold claims. In most cases, the gold claim will not have justifiable proved reserves for an outlay that would allow the miner to be profitable and therefore not a liability for the financier. The fact that the claims are scattered means that the exploration is random. Economies of scale are not achieved as no single miner requires all the equipment, from diamond drills used in exploration to stamp mills or crushers used in gold recovery. This presents an unusual dilemma for resource exploitation that is compounded by the fact that, in many cases, small-scale miners are not prepared to part with title to the property, as it likely represents a large part of their net worth. Furthermore, the value they would want for the title is also, in most cases, much higher than the value assigned by potential buyers using the available geological material. Small miners do not keep verifiable production records of gold recoveries and tonnages mined. So, again, it’s hard to agree on the intrinsic value of the title.
A look at the mining records contained in the World Gold Analyst – Zimbabwe 2010 Special Report (WGR) will further confirm what we have always believed. Although gold production has been falling between 2006 and 2010 (H1), gold deliveries by custom millers as a percentage have been increasing. Gold production from large mines will increase as capacity utilization increases, but the significance of this stat is that it underscores the importance of custom milling plants in unlocking the value of these small mines. With this in mind and considering the aforementioned challenges of small-scale mining, investors need to take a new approach.
A new approach would be to establish what we loosely call “centers of excellence.” These centers are fully capitalized resource centers for gold miners in whatever region they are established. They do more than just transport and crush minerals for small mines. They are a one stop shop for title holders who want to unlock the underlying value of the gold mines they are literally sitting on. The center will have all the required capital equipment, from exploration to gold recovery, and will also provide a full boutique of services such as mining engineers, geologists and geological intelligence that small miners cannot afford to employ individually. The hub may have cyanidation farms similar in technology to leach tailings. Because of their size, they are better capital motivators. Profitability increases due to production economies and fuller utilization of all mining equipment. The fact that the title is not purchased outright also means that the model saves money that would normally have been used to purchase reservations. The center will assist miners in transporting minerals for crushing, geological sampling, and advice on mine structure and the best methods for attacking the reef. The center will also lease miners any equipment they need to enable production. This will be done at no up-front cost, but on a pre-agreed contractual basis with the miners paying taxes and royalties to the center after gold recovery when the ores are crushed. Pre-feasibility studies will be carried out prior to contractual arrangements to ensure gold recovered is sufficient to cover royalties. To be sure, miners also face challenges when trying to market their gold. In many cases being the victim of unscrupulous people involved in the industry. Hubs can purchase any excess gold from miners in surrounding areas and, due to the collective volumes of gold purchases, will be in a better position to obtain more competitive commodity prices.
The centers will also maintain ore production and delivery histories, including gold recovered from all mines in the area. Over time, such information will be used to consolidate clusters of small mines in a particular area with the goal of developing exploration and geological intelligence of that area and converting it into a medium-sized mine. Title holders in such areas may be offered separate Joint Venture agreements or direct acquisitions. In fact, such consolidation is what led to one of the country’s great mines. The Jumbo mine, now owned by Metallon Gold, was actually part of a group of smaller mines, of which the Jumbo mine was the most prominent. Over time, the clusters consolidated and now Jumbo has left its humble beginnings behind.
Our approach is that the Hub is what needs to be capitalized on. Quite simply, our approach is this: the center is not just a grinding plant. It is a gold mine with outsourced labor.
